The Kaiser Family Foundation recently released its latest annual report on employer-sponsored health care benefit costs. People seem to be aghast that the premium (employer plus worker contributions) for a family health insurance policy is $26,993. As KFF’s CEO Drew Altman stated, “You can buy a new Toyota Corolla Hybrid every year for less than that.” He’s right. The total cost is outrageous.
Who Knew? Anyone Who Looked at the Trend
However, this is not sudden or out of the blue. This reflects three decades of steady health cost escalation. The summary chart from KFF clearly demonstrates a rock-solid slope of price increases. It was 6% higher in 2025 than 2024, but it has ranged from 1% to 7% since 1999. The biggest recent perturbation is in 2021–2023, reflective of nearly no increase in premiums just after the COVID-19 pandemic and a larger jump in 2023 when all of the pent-up health care demand in 2022 resulted in higher premiums the following year.
This post will not address worker contributions vs. employer contributions, although the rise in the former especially, has multiple effects, including lower salary and less discretionary spending. Instead, we’ll focus on the increase in total costs.
I’ve been covering the health care industry since 1987, and virtually every policymaker at that time believed that health care was too costly. Personally, I didn’t think so, because I had no exposure to it. My employer paid my premium in full, and it was a zero-deductible health plan. Nearly all private health care was obtained through employers. Both public and private employers and the federal government were increasing their use of managed care plans like HMOs and PPOs to combat these rising costs. Yet the increase in costs continued, unabated. A well-known professor at Northwestern University’s Kellogg School of Economics, Edward F.X. Hughes, PhD, pointed out repeatedly that without managed care, the slope of health care cost increases may have been far greater. Today, I wonder.
At the time, we blamed the introduction of new technologies and their increasing utilization for the inexorable rise in costs. For example, every hospital purchased an MRI, CT scanner, and often a PET scanner. To pay for that high capital expenditure, hospitals would raise their price for all services. The managed care plans would try to negotiate lower rates with the hospitals and health systems, but that negotiated rate still was greater than in the last contract. Costs never went down. That catalyzed the silly game of hospitals charging increasing amounts for common procedures like knee replacements, and managed care plans reimbursing them a smaller fraction of those amounts. Patients were often asked to foot the rest of the unreimbursed charge (“balance billing”). In the end though, managed care plans did not halt the annual increase in provider costs, and sure enough, premiums rose to pay for the higher costs.
Are Drugs the Main Reason for Rising Health Costs?
By the late 2000s and mid-2010s, it was clear that specialty drugs utilization was rising fast. The specialty pharmaceuticals were accused of being the latest drivers of rising health care costs. Keep in mind that pharmaceutical costs do play a role in rising health care costs, but they have generally represented less than 12% of the total health care spend. Even today, where specialty pharmaceuticals represent more than half of pharmacy costs, this percentage has remained largely unchanged (mainly because the denominator—total health care costs—is growing as well). Hence, the BPCIA was passed, to help us save money through biosimilar competition. And biosimilars have delivered on that promise, to the tune of about $56 billion since 2015 and accelerating, according to the Association for Accessible Medicines. But total pharmaceutical spending in the US was $450 billion in 2023 alone (an 11% increase from the previous year). This represented only 9.1% of total health care spending in 2023 ($4.9 trillion).
Increased pharmaceutical spending should not be looked upon negatively; it is generally associated with lower acute, emergency, and urgent care spending. Greater use of biosimilars can contribute to greater care value, as greater use of generics contributed in this respect in the 1980s and 1990s. The biosimilars marketed today, later this year, and in 2026, will have a statistically significant effect on curbing pharmaceutical spending, especially in specific drug categories.
In the United States, however, biosimilars are funding two separate, important health care benefits: (1) getting effective biologic medications to greater numbers of patients who may benefit from them and (2) providing the means to shift resources to pay for new and expensive technologies. Biosimilars will not lower overall pharmaceutical spending, until we run out of new treatment technologies to research and use. Both benefits are highly valued and judged by society to be worthwhile. Overall, though, pharmaceutical costs will not level off or decrease any time soon.
The Affordability Tipping Point
Note that it will be less possible each year to shift additional costs to workers, patients, and their families (households now shoulder 27% of total healthcare spending). Indeed, cost shifting and premium sharing are the only reasons that employer-based health insurance still represents the largest segment of the private market.
We are at a tipping point for personal out-of-pocket spending on premiums and care, as we await the outcome of Congressional action on the Affordable Care Act subsidies. Get ready for a sizable boost in the uninsured. Hopefully, they can afford biosimilars and generics, at least. They won’t be able to afford a new Toyota Corolla Hybrid every year. Who can?
